Yuchai Machinery (Guangxi) Group Co., Ltd. - FY 2008

Business Highlights

Joint venture projectsEstablishing two joint venture companies with Geely Holding and Yinlun Machinery to manufacture diesel engines for passenger vehicles
In February 2008, China Yuchai International ("China Yuchai") announced that its subsidiary, Guangxi Yuchai Machinery Company ("Yuchai"), has entered into a Joint Venture Agreement with Zhejiang Geely Holding Group ("Geely") and Zhejiang Yinlun Machinery ("Yinlun"), to form two joint venture companies in Tiantai, Zhejiang Province and Jining, Shandong Province. The joint venture companies will be primarily engaged in the development, production and sales of a proprietary diesel engine and its parts for passenger vehicles. The main product is a 4D2.0L diesel engine and the technology for this new diesel engine will be provided by Geely. The total production capacity of both JV companies will be 300,000 diesel units, with each joint venture company starting with a capacity for 50,000 diesel engine units and then adding capacity to reach 150,000 units annually. Yuchai will be the controlling shareholder with 52% in both joint venture companies while Geely and Yinlun will have a 30% and 18% shareholding respectively in both companies.(From a press release, February 25, 2008)

In March 2008, Jining Yuchai Engine Company Limited held a ground breaking ceremony for the construction of its new production facility. Jining Yuchai will build up its production lines for diesel engine blocks and cylinder heads with the focus on producing environmentally friendly, 2 litre diesel engines for passenger vehicles to meet the strict Euro V emissions standards. (From a press release, March 31, 2008)

Diesel engine production company in Ziyang City, Sichuan Province
In September 2008, Yuchai Machinery (Guangxi) Group Co., Ltd. and the officials of Ziyang City, Sichuan Province signed an agreement enabling Yuchai Machinery Ziyang Engine Co., Ltd., which was established jointly between Yuchai Machinery (Guangxi) and a local company in June, to build a diesel engine production facility in Ziyang. The planned amount of total investment in this project is 600 million yuan. By 2012, when the production lines are fully operating, the plant is expected to have the capacity to produce 150,000 to 200,000 medium- and small-size engines, which will be worth 3 to 4 billion yuan; plus 500 large engines for ships, which will be worth 5 to 6 billion yuan.

Strategic alliance Strategic collaboration with Honeywell
- In June 2008, the Company and Honeywell signed a strategic partnership agreement. Under this agreement, Honeywell will provide Guangxi Yuchai Machinery with advanced technology and products in the areas of pressure boosters, exhaust systems, energy consumption, and sensing and control systems over a period over three but less than five years, starting from now. Honeywell will also offer strong support to Guangxi Yuchai Machinery's product development activities, after-sales services, and technical training programs, helping the Chinese company enhance its development capabilities. The two companies' first collaboration dates back to 1994, when Honeywell started supplying pressure intensifying systems to Guangxi Yuchai Machinery. The signing of the partnership agreement this time follows the one formed in 2005 and further strengthens the ties between these companies. (From a press release, June 24, 2008)

Establishing new industrial park
Two years have passed since construction was started at Yuchai Industrial Park, construction of which began in August 2007, now houses 15 affiliate companies manufacturing a total of 5 billion yuan worth of auto parts per year. In order to increase the amount of products manufactured at the park to 10 billion in yuan by 2010, further construction projects are in progress. The park, which is 22.83-square-kilometers, consists of two sections: the power machinery and automotive parts section, and the construction equipment section. By 2010, 50,000 people are expected to be working in the park. This number is expected to eventually reach 100,000. (From a press release, September 27, 2008)

Divestiture
In November 2008, the Company announced that it will sell the state-owned shares that the Chinese government holds in Guangxi Yulin Yuchai Daye Machinery Fittings, one of its subsidiaries. In China, divesting state-owned stock was liberalized under the State-owned Enterprise Reform project launched in 2005. The volume of government shares to be sold equals 55% of the capital in Yuchai Daye and is valued at 11.5 million yuan. Yucahi Daye, which was established in 2003, manufactures diesel engine components including oil coolers

R&D

<R&D facility>

Facility

Overview

Guangxi Yuchai Engineering Research Institute

- Established in 2007, this research institute conducts its development activities in four divisions: Product engineering division; Electronic control technology division; Test engineering division, and Technology management division.
-The focus of its development activities is on engineering technology as practical business solutions to reduce emissions, and developing diesel engines for passenger vehicles.

<New products>
- In March 2007, a passenger vehicle, which is powered by a low-emissions, electronically controlled diesel engine jointly developed by the Company, Jilin University, and Guanxi University, passed the screening conducted by the Ministry of Science and technology of the People's Republic of China. The new engine,which the Company started developing in 2005, features technology such as turbine pressure boosters, exhaust gas recirculation systems, common rail fuel systems, and direct injection systems.

<Product developments >- In October 2007, the Company, Jilin University, and Guanxi University unveiled their new hybrid system they have been working on since 2006. The hybrid system, which uses an integrated starter generator (ISG), was developed targeting buses used for urban transportation.

- In December 2007, the Company announced that it had developed the YC6L-50 Euro V engines, which meet the Euro V emissions standards. Offering 240-330 horsepowers, maximum torque of 950-1280N.m, and minimum fuel consumption of 189g/kWh the new eco-friendly engine is optimized for use in buses used for urban transportation.

Investment Activities

Major investment projects (2008)

Project

Targeted annual production capacity

Budgeted amount (in million yuan)

Status
(2008)

Construction of a new crankshaft plant at Guangxi Yuchai Automobile Parts Manufacturing

To increase production capacity to make crankshafts

- Annual production capacity is expected to reach 300,000 units when the production line No.2 begins operating after the first phase of the construction project. (January 2008)

- After the second phase is completed, annual production level is expected to increase to 800,000- 1,000,000 units, production volume to total 1.5 billion yuan, and the number of employees to reach 2,000.

350 million yuan
(Phase one: 50 million yuan)

Production lines No.1&No.2 already started operating following the completion of the first phase.

The Company launched the second phase of the construction project in January 2008.

Yuchai Industrial Park project

- The Company aims to produce products worth 10 billion yuan at the Industrial Park by 2010.

- The 22.83-square-kilometer facility consists of the power machinery and auto parts section, and the construction equipment section.

- In 2010, 50,000 people are expected to be working in the park.

-

15 affiliates already moved into the new Industrial Park.

Operations began in steps, with production volume having reached 5 billion yuan. (as of September 2008)

Construction of a plant to make small diesel engines at Yuchai Power Machinery

200,000 small diesel engines

190 million yuan

Production began in July 2008
Commercial production is scheduled to begin in August 2009